Corporate Officers May be Personally Liable for Willful Exaggeration of Lien

The general rule is that an officer of a corporation is not ordinarily liable in his individual capacity for actions taken on behalf of the corporation. However, there are certain exceptions where he may be held personally liable. One of the exceptions to the general rule is when an officer of the corporation participates in a tortious act, even if the participation of the corporate officer is in the interest of the corporation.

In the case of Power Air Conditioning Corp. v. Batirest 229 LLC, the court ruled on whether a corporate officer can be personally liable for filing a willfully exaggerated mechanic’s lien.

Background

In February of 2014, Power Air Conditioning entered into a subcontract with IBC Business Groups, LLC, then the general contractor for a construction project at the premises owned by Batirest 229, LLC. Eighteen months later, Batirest terminated IBC as general contractor and hired Lithos Construction Solutions, Inc. as its replacement contractor. Power A/C entered into a new subcontract with Lithos, and a separate agreement with Batirest itself. Power A/C’s agreement with Batirest incorporated its agreements with Lithos and also required Batirest to pay Power A/C certain amounts for its work on the project.

Batirest became delinquent in paying Power A/C, IBC and Lithos, and all three filed mechanic’s liens against Batirest’s property. These liens were personally verified by Don Emanuel, Rance MacFarland and Andreas Christofakis, in their capacity as officers of Power A/C, IBC and Lithos, respectively. Power A/C commenced a lawsuit seeking to foreclose on its lien against Batirest. In its answer, Batirest asserted counterclaims for, among other things, willful exaggeration of mechanic’s liens and injury to property under General Construction Law § 25-b against the three entities and their respective officers individually. The officers of the three contractors moved to dismiss the personal claims against them, arguing that they cannot be held personally liable for acts taken on behalf of the corporation.

Decision

The court denied the individuals’ motion to dismiss the claims against them for willful exaggeration of mechanic’s liens. In doing so, the court relied on well-established case law that although an officer of a corporation is not ordinarily liable in his individual capacity for actions taken on behalf of a corporation, such insulation does not extend to corporate officers who participate in the commission of a tortious act—even if it is within the scope of his duties and for the benefit of the corporation. The tort here was the improper filing of willfully exaggerated mechanic’s liens by intentionally inflating the amounts of the liens, including by adding amounts for work the corporations did not perform, and subsequently verifying and filing the liens in their capacity as officers of their respective corporations.

As to the claim for violating Section 25-b of the General Construction Law (which provides that “injury to property” is an actionable act), the court held that the sanctions set forth in Sections 39 and 39-a of the Lien Law for the willful exaggeration of a mechanic’s lien were exclusive remedies, and a claim on a different theory could not be maintained.

Comment

Although intentionally inflating the amount of a mechanic’s lien may be a good way to get someone’s attention, it has long been known to be a bad strategy because not only is the lien void (and it cannot be re-filed in the correct amount), the damages recoverable against the exaggerating lienor include the amount of any lien bond premium to discharge the lien, reasonable attorney’s fees and an amount equal to the difference by which the willfully exaggerated amount exceeds the amount actually due to the lienor.

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